GST rate likely to be under 18%: Arun Jaitley

Financial Express, December 17, 2015

Finance minister Arun Jaitley on Wednesday hinted the standard goods and services tax rate could be lower than 18%. An expert panel headed by chief economic adviser Arvind Subramanian had recently recommended the rate to be 17-18%, in view of the estimated revenue-neutral rate of 15%.

The minister added that the government was open to dropping the plan to impose a 1% origin-based tax on interstate movement of goods, one of the main demands of the Congress party, which is blocking the passage of the GST Constitutional Bill in the Rajya Sabha. ?The issue (of 1% tax) is eminently resolvable,? he said.

However, during an interaction with industry leaders on GST here, the minister said the other demand of constitutionalising a tax rate could not be accommodated as tariffs are never specified in the Constitution. Also, the Congress? demand to have a dispute resolution mechanism within the proposed GST Council comprising central and state finance ministers can be accepted to the extent that the council could decide the modalities of dispute resolution but not actually adjudicate.

Jaitley is keen to roll out GST from next fiscal as this would add to the economic growth prospects.

Referring to Congress opposition to the GST Bill, he said that many express only lip sympathy for GST without actually supporting the reform on the floor of the House.

?Let me concede that one of the three Congress demands is a fair arguable point. On the 1% additional tax for two years, I told my friends, we are willing to go back to manufacturing states and say that since we have agreed to compensate you for full five years, this provision can be done away with. It is a resolvable issue,? said Jaitley. It was at the insistence of states like Gujarat and Tamil Nadu this provision was introduced. ?After all, when states and the Centre are surrendering sovereignty to the GST Council, the council will decide (the rates). In any case, there cannot be only one rate? So we can?t put a rate in the Constitution. Since the rate is much less than 18%, the issue gets resolved,? Jaitley said

According to the minister, the economy, which is currently growing below its real potential, could add another 1-1.5 percentage point to its current growth rate ? 7.4% recorded in the second quarter ? if a few variables turn more favourable. Jaitley said such an outcome would depend on whether global oil price continues to be favourable, the country gets a normal monsoon next year and whether there would be some revival in global economic growth.

?Our real potential is more than what we are achieving today. Our emphasis on infrastructure spending continues to increase because oil price remains favourable. If the next monsoon season is at least normal and some revival of global growth starts taking place, in addition to where we are now (of 7.4% GDP growth), I do not see any difficulty why India cannot improve upon its growth rate by 1- 1.5 percentage point. That brings us close to our real potential,? Jaitley told business leaders while reassuring that the government would continue to carry out structural reforms.

Growth in the second quarter was better than the 7% recorded in the first quarter but was lower than the 8.4% recorded a year earlier.

The minister said he would go ahead with reducing direct tax exemptions and gradually bring down the highest marginal rate of corporate tax to 25%.

He also said that there cannot be just one GST rate. ?There would be a lower rate for commodities (for the common man), a standard rate for most other products and a higher rate for super-luxury or ?sin? products. So we cannot put a rate in the Constitution,? the minister said.

?Can tariffs be cast in stone? If there is a drought and you need to raise the tax, can you amend the Constitution? The understanding with the states is that the council will decide (the tax rate),? said Jaitley.

Subramanian said GST would be a buoyant source of revenue over the medium term. The indirect tax reform, along with the phasing out of corporate tax exemptions and addressing of legacy tax issues would lead to a clean, efficient, modern and broad tax regime replacing tax terrorism. GST represents continuity of Indian thinking over the years and is a bipartisan effort, he said.

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